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The explosion of innovation in financial service products is driving a growing reliance on third parties to help process and distribute products that, in turn, is making third-party oversight a key priority integrated with daily operations, according to top prepaid card industry experts at preliminary sessions during Money2020 in Las Vegas on Oct. 6. Because regulators have made it clear that third parties may be subject to the same rules that apply to banks, financial services providers must ensure all third parties they work with meet their own standards and establish ongoing processes to continue monitoring third parties, said John Hagy, MetaBank’s chief legal officer. “We take a very similar approach to monitoring third parties that work with us, as the process regulators apply to us,” he explained, adding that MetaBank in the last few years has quadrupled the size of its fraud compliance staff to ensure third parties are meeting its anti-money laundering—and other—standards for all products, across the board.

TSYS also has significantly increased its internal compliance staff within the last couple of years, and has engaged outside vendors to help monitor and guide third parties to ensure they are in compliance, LouAnn Anstis, TSYS director of compliance and risk, told attendees. “The cost of compliance has dramatically increased for us,” she said, noting that TSYS makes third-party compliance a part of everyday operations. “We reach out to vendors on a regular basis … always exploring whether anything our partners are doing could pose a strategic, operational or reputational risk,” Anstis said.

Prepaid and other card providers should recognize from recent enforcement actions that regulators are taking consumer complaints very seriously as well, James H. Freis Jr., counsel at Cleary Gottlieb Steen & Hamilton LLP, told attendees. Timely and appropriate responses to any consumer complaints should become a top priority for providers, said Freis, who previously served as director of the U.S. Treasury Dept.’s Financial Crimes Enforcement Network (FinCEN). “One thing coming through from regulators is the need to properly comply with rules for handling big data, and making sure that third parties are reporting up what they’re hearing from consumers,” he added.

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